The Door Opens Wider? China to Remove Quota Restrictions on QFII and RQFII
The country's market watchdog has announced the cancellation of the 'Qualified Foreign Institutional Investor' scheme quota limits, removing another barrier for foreign investment.
The State Administration of Foreign Exchange (SAFE) announced earlier today that China will cancel the investment quota restrictions for 'Qualified Foreign Institutional Investors' (QFII) and 'Renminbi Qualified Foreign Institutional Investors' (RQFII).
According to the statement published on the organization's official website, the country will abolish the investment quota limitations "in order to implement the major policy decisions of the Communist Party of China Central Committee on promoting the new pattern of comprehensive opening up and further expand the opening up of China's financial markets." The project has already been approved by the State Council.
As SAFE has reported, over 400 institutional investors from more than 30 countries have invested in China's secondary market since the QFII (2002) and RQFII (2011) schemes began. However, the existing programs haven't so far gone viral among the major global asset management firms. According to Bloomberg, foreign investors had used less than 40% of the quota available by the end of August 2019. This cancellation can be thereby considered as 'just another symbolic change'.
The silver lining is that the new measure in some ways pummels the used-to-be-tough scrutiny. As the country has eased capital restrictions, global investment funds no longer need to wait for the state watchdog's permission. They might henceforth save some time through bypassing the bureaucratic corridors of China's financial market.
Over the past several years, Chinese companies' shares have been mostly available through American Depositary Receipts (ADR). Over 190 firms registered in China are listed on the two major U.S. exchanges as of September 10, 2019. Hong Kong Stock Exchange-listed enterprises (so-called 'H-shares') are also openly traded among global investors.
London-based asset management firm Lazard projects that "a growing proportion of China A-shares will likely be held by foreign institutional investors compared to domestic retail investors." The financial advisory firm expects A-shares (yuan-denominated stocks on the Shanghai and Shenzhen bourses) to "act more like H-shares".
Shanghai-Hong Kong Stock Connect (沪港通), the first cross-boundary investment channel allowing Mainland China traders to buy and sell shares of Hong Kong-listed stocks and vice versa, was established in 2014.
"Foreign investment accounts for just 2% of the total value of the A-share market," Fang Xinghai, a vice-chairman of the China Securities Regulatory Commission (CSRC) said in June 2018. "So we need to open it up further."
The China Securities Journal (中国证券报) reported this week that non-Chinese investors account for only 3.8% of combined China's stock market value.